Actualidad Colombia

Intervention and liquidation of financial institutions

Ruling of the Council of State

The Council of State, the supreme court for litigation against the State, handed down this ruling on 26th February 2015, analysing whether the State is responsible for a financial institution going into liquidation and consequently for the savings that its depositors lose in such process. It recognises that the State has oversight of the financial industry, as it engages in an activity of public interest.

The State cannot control market conditions

However, it finds the the State cannot be held responsible for adverse conditions in the market that lead to bankruptcy of a financial institution, and therefore cannot be deemed liable for the savings that individuals lose in such bankruptcy. The State must nonetheless exercise its powers to intervene in such financial institutions in a timely and adequate manner, in order to avoid bankruptcy of companies legally engaged in taking customer deposits, insofar as possible.

In this case, the court found that the Colombian State showed due diligence in avoiding the liquidation of Banco Selfin, S.A., ordering it to boost its capital ratios, drawing up a special plan with the institution, and then taking it over. The State was consequently exonerated from paying the loss and damages claimed by the plaintiff.